(The syllabus is not part of the opinion of the Court. It has been prepared by the Office of the Clerk for the convenience of the reader. It has been neither reviewed nor approved by the Supreme Court. Please note that, in the interests of brevity, portions of any opinion may not have been summarized).
Argued November 18, 1996 -- Decided March 10, 1997
O'HERN, J., writing for a unanimous Court.
The two separate appeals before the Court are considered as one for purposes of convenience. The two
issues raised on appeal are: 1) whether the ordinance authorizing the acquisition of the land by Atlantic City (the
City) with funds provided by an adjoining property owner complies with the Local Budget Law; and 2) whether the
requirements under the Eminent Domain Act (the Act), for the City to have obtained an appraisal before
condemnation and to have made an offer to acquire the land for the appraisal price, may be waived by the record
owner of the property.
Greate Bay Hotel and Casino, Inc. (Sands) was the first to develop a casino on property that is the center
of this appeal. In 1979, the Atlantic City Planning Board required Sands, as a condition of development, to dedicate
a portion of its land to form half of what became known as Pop Lloyd Boulevard, slated to be a north-south road
parallel to the boardwalk between Indiana Avenue and Martin Luther King Boulevard. The Planning Board required
Sands to position its loading docks on the Pop Lloyd side of its property and to route its bus and patron traffic by
way of this new road to its front door.
The adjoining parcel of land to the east, the former site of the Traymore Hotel, was owned by Cynwyd
Investments. Cynwyd had given a ninety-nine-year lease, with an option to purchase, to Boardwalk Regency
Corporation (Caesars). Caesars planned to build a casino-hotel on the Traymore site. The Planning Board required
Caesars, as a condition of its development approval, to dedicate land to make up the other half of Pop Lloyd
Boulevard. In 1979, Caesars gave up its plans for building the casino and never dedicated the strip of land for use
as a street. Caesars then subleased the Traymore site to Square Brighton Corporation, Inc. (Square), for use as a
parking lot. Pop Lloyd Boulevard, however, was built as planned, half on land owned by Sands and half on the
Traymore land.
When Square learned that its sublease included one-half of Pop Lloyd Boulevard, it placed a fence across
the road that prevented Sands' use of its loading dock. Although the City initially leased the other half of the road,
Sands eventually had to rent the 16-foot strip of Pop Lloyd Boulevard (the Property) held by Square, so that it could
access its loading dock and front door.
In 1991, Sands sued the City, Cynwyd, Caesars, and Square to compel the City to acquire the Property by
eminent domain or to pay damages to Sands for the effect on its property. In 1994, Sands and the City entered into
a settlement ("the Stipulation"), under which the City agreed to acquire the Property for public right-of-way purposes,
either by purchase or by eminent domain. Sands agreed to pay 100" of the fair market value compensation as
defined in the Eminent Domain Act, plus all associated costs paid by the City to acquire the Property. Atlantic City
Ordinance #61-1994 (Ordinance 61), adopted on August 31, 1994, authorized the implementation of the Stipulation
and the acquisition of the Property by condemnation if necessary. Because the Property was to be acquired through
funds supplied by Sands pursuant to the Stipulation, the ordinance made no appropriation of funds for the acquisition
of the Property.
The City negotiated an acquisition price of $625,000 with Cynwyd despite having an appraisal valuing the Property at $1,122,400 for tax purposes. This alleged underpayment would have had a devastating monetary effect on Caesars. In addition, under its sublease with Caesars, Square would lose its right to charge Sands rent for use of the Property. Because Cynwyd could not deliver an unencumbered title, the City had to institute condemnation proceedings under the Act. Both Square and Caesars challenged the taking, claiming in separate actions primarily that Ordinance 61 was invalid and that the City had not complied, in the condemnation action, with the requirements of the Act. Square claimed that Ordinance 61 and the contract that it approved violated the Local Budget Law.
Because Ordinance 61 obligated the City to acquire real property without appropriating funds for the costs of
acquisition, Square contended that the ordinance is void, under to the Local Budget Law, as an authorization of an
expenditure without an appropriation. Sands countered that the Local Budget Law did not apply because the City
was not expending public funds.
On motions for summary judgment, the trial courts held that Ordinance 61 was valid, in that it complied with
the Local Budget Law, and that the City had not violated the Act because the owner of the Property had waived
compliance with the Act's requirements. The Appellate Division affirmed the decision of the trial courts.
The Supreme Court granted Square's and Caesars' petitions for certification.
HELD: Atlantic City Ordinance #61-1994, authorizing the acquisition of land with funds provided by an
adjoining landowner, complies with the Local Budget Law. The requirements under the Eminent
Domain Act, for Atlantic City to have obtained an appraisal before condemnation and to have made
an offer to acquire the land for the appraisal price, may be waived by the record owner of the
property, unless the waiver works an actual prejudice on other condemnees.
1. The Local Budget Law regulates the budget-making process for all counties and municipalities in the State; its
purpose is to require local governments to follow sound business principles in their budgetary practices. As the trial
court found, that purpose was addressed by the adoption of the Stipulation and the ordinance to implement it. The
Court would be more concerned about an action to acquire lands without presently available funds were it not for
the enforceable Stipulation and the concurrent judicial supervision of the obligations of Sands. Thus, the City did
not violate the Local Budget Law under these circumstances. (pp. 11-14)
2. Section 6 of the Eminent Domain Act requires that the condemnor conduct "bona fide negotiations with the
prospective condemnee" before any condemnation action under the Act may be instituted. Before any offer may
be made to the condemnee, the taking agency is to appraise the property and no offer is to be less that the taking
agency's approved appraisal of the fair market value of the property. Although these pre-condemnation requirements
of Section 6 cannot be dispensed with over the objection of a condemnee, the requirements may be waived by a
condemnee. (pp. 14-17)
3. Under the Act, negotiations are to be undertaken with the condemnee who owns title of record to the property.
The rights of all other condemnees with a compensable interest are better protected by allowing them to participate
in later proceedings. The purpose of the statutorily-required negotiations set forth in Section 6 is to encourage
settlement and the voluntary acquisition of property needed for public purposes, allowing both the public entity and
the landowner to avoid the expense and delay of litigation, while enabling the landowner to receive just compensation.
That statutory purpose was accomplished here because the compensation agreement eliminated any legal dispute
between the City and Cynwyd. Those with whom the condemnor negotiates prior to the filing of suit may elect to
waive strict compliance with the provisions of Section 6. However, a condemnation complaint should not be
dismissed for failure strictly to comply with the procedural prerequisites to suit without an inquiry into whether the
title holder was prejudiced thereby. (pp. 17-19)
4. Although ninety-nine-year lessees are considered equivalent to fee simple owners for certain purposes under the
law, the Court will not apply that doctrine in condemnation cases. A condemnee holding record title may not waive
the procedural rights under the Act without consideration of the rights of other condemnees. Thus, a court probably
should dismiss a complaint in condemnation if the waiver of procedural rights by a holder of record title works an
actual prejudice to other condemnees, including ninety-nine-year lessees. Although Caesars and Square may not have
had a compensable interest in the award itself, there were differing interests in the outcome of the condemnation
that would have required their participation. The proper solution to vindicate the public interest would have been
to have Caesars and Square participate in the valuation proceedings to present evidence of fair value. (pp. 19-22)
Judgment of the Appellate Division is AFFIRMED.
CHIEF JUSTICE PORITZ and JUSTICES HANDLER, POLLOCK, GARIBALDI, STEIN and COLEMAN
join in JUSTICE O'HERN's opinion.
SUPREME COURT OF NEW JERSEY
A-55/56/
57 September Term 1996
THE CITY OF ATLANTIC CITY, a
Municipal Corporation,
Plaintiff-Respondent,
v. A-55/56
CYNWYD INVESTMENTS, a Pennsylvania
Partnership and GREATE BAY HOTEL
AND CASINO, INC., t/a SANDS HOTEL &
CASINO, a New Jersey Corporation,
Defendants-Respondents,
and
CORESTATES NJ NATIONAL BANK,
ATLANTIC CITY ELECTRIC COMPANY, t/a
as ATLANTIC ELECTRIC, a New Jersey
Corporation, and THE STATE OF NEW
JERSEY,
Defendants,
and
BOARDWALK REGENCY CORPORATION, a
New Jersey Corporation, and SQUARE
BRIGHTON CORPORATION, INC., a New
Jersey Corporation
Defendants-Appellants.
---------------------------------
SQUARE BRIGHTON CORPORATION, INC. a
New Jersey Corporation and FLOYD
JAMES, a taxpayer of Atlantic
City,
Plaintiffs-Appellants,
v. A-57
THE CITY OF ATLANTIC CITY, a
Municipal Corporation and Body
Politic of the State of New Jersey,
GREATE BAY HOTEL AND CASINO, INC.,
t/a "Sands Hotel & Casino", a New
Jersey Corporation, CYNWYD
INVESTMENTS,
Defendants-Respondents,
and
BOARDWALK REGENCY CORPORATION, a
New Jersey Corporation,
Defendant.
Argued November 18, 1996 -- Decided March 10, 1997
On certification to the Superior Court,
Appellate Division, whose opinions are
reported at
287 N.J. Super. 442 (1996) and
287 N.J. Super. 450 (1996).
Gerard W. Quinn argued the cause for
appellant Boardwalk Regency Corporation, etc.
(Cooper Perskie April Niedelman Wagenheim &
Levenson, attorneys; Mr. Quinn and Lloyd D.
Levenson, on the briefs).
Edward N. FitzPatrick argued the cause for
appellants Square Brighton Corporation, Inc.,
etc., et al. (DeCotiis, FitzPatrick &
Gluck and McGahn & Friss; attorneys;
(Mr. FitzPatrick and Patrick T. McGahn, Jr.,
of counsel; Mr. FitzPatrick, Mr. McGahn,
Raymond S. Papperman and Agnes I. Rymer, on
the briefs).
Daniel A. Corey, City Solicitor, argued the
cause for respondent City of Atlantic City,
etc. (Mr. Corey and John M. Eccles, Jr., on
the briefs).
John H. Rosenberger argued the cause for
respondent Cynwyd Investments, etc. (Perillo
& Rosenberger, attorneys).
Stephen R. Nehmad argued the cause for
respondent Greate Bay Hotel and Casino, Inc.,
etc. (Perskie & Nehmad, attorneys; Mr.
Nehmad, Frederick H. Kraus and Richard F.
DeLucry, on the brief).
The opinion of the Court was delivered by
O'HERN, J.
These appeals concern the validity of an acquisition of land
by Atlantic City. (For convenience, we refer to the two appeals
as one case.) The acquisition had the effect of creating a
widened roadway that provides access to casino-related
properties. There are two issues: (1) whether the ordinance
authorizing the acquisition of the land with funds provided by an
adjoining property owner complies with the Local Budget Law,
N.J.S.A. 40A:4-57; and (2) whether the requirements under the
Eminent Domain Act, N.J.S.A. 20:3-6, for the City to have
obtained an appraisal before condemnation and to have made an
offer to acquire the land for the appraisal price, may be waived
by the record owner of the property. At first glance it appeared
that the City was playing favorites with parties having an
interest in these boardwalk-related properties. On closer
analysis, the City appears simply to have been engaged in an
attempt to extricate itself from an imperfect effort to provide,
through municipal planning, improved motor-vehicle access for
properties to be used for casino development. We affirm the
judgment of the Appellate Division upholding the municipal
actions.
The case has its inception in the heady days of real estate
development following the adoption of the 1976 constitutional
amendment authorizing casino gambling in Atlantic City. The
familiar board game, "Monopoly," uses the street names of
Atlantic City to illustrate how some properties, by virtue of
location, may have greater value than others. We deal with two
parcels of land in the Park Place area of Atlantic City that were
acquired for possible casino development. Because the case
arises on motions for judgment, we accept the facts in the light
most favorable to the aggrieved parties.
The defendant, Greate Bay Hotel & Casino, Inc. (Sands) was
the first to develop a casino on one of the properties. In 1979,
the Atlantic City Planning Board required Sands, as a condition
of development, to dedicate a portion of its land to form half of
what became known as Pop Lloyd Boulevard. But for such a road,
traffic would reach a dead-end at the Boardwalk; there was no way
for traffic to circulate. Pop Lloyd Boulevard was to be a north-south road parallel to the boardwalk between Indiana Avenue and
Martin Luther King Boulevard.
The Planning Board required Sands to position its loading
docks on the Pop Lloyd side of its property and to route its bus
and patron traffic by way of the new road to the Sands' front
door. The adjoining parcel to the east, the former site of the
Traymore Hotel, was owned by Cynwyd Investments. Cynwyd had
given a ninety-nine-year lease (with an option to purchase) to
Boardwalk Regency Corporation (otherwise known as Caesars).
Caesars proposed building a casino-hotel on the Traymore site.
The Planning Board also required Caesars, as a condition of its
development approvals, to dedicate land to make up the other half
of Pop Lloyd Boulevard. The location of the properties is shown
on the sketch below:
Graphic file number 0 named sandsda1.pcx with height 327 p and width 243 p Center aligned
Although Caesars obtained its land use approvals in 1979, it
gave up plans for a casino on the Traymore site and never
dedicated the strip of land for use as a street. Caesars
then subleased the Traymore site to Square Brighton Corporation,
Inc. (Square), for use as a parking lot. Pop Lloyd Boulevard,
however, was constructed as planned, as a paved road
approximately 30 feet wide, half on land owned by Sands and half
on the Traymore land.
When Square discovered that its sublease included one-half
of Pop Lloyd Boulevard, it put a fence down the middle of the
street, preventing the use of Sands' loading dock. At first the
City leased the other half of the road. When the City would no
longer do so, to gain vehicular access to its loading dock and
front door, Sands had to rent the 16-foot strip of Pop Lloyd
Boulevard (the Property) held by Square.
In 1991, after years of off-and-on litigation and
discussion, Sands sued the City, Cynwyd, Caesars, and Square to
compel the City to acquire the Property by eminent domain or to
pay damages to Sands for the effect on its property. At the end
of trial in 1994, Sands and the City entered into a settlement
(referred to as the Stipulation) under which the City agreed to
acquire the other half of the road for public right-of-way
purposes, either by purchase or by eminent domain. Sands agreed
to pay one-hundred percent of the fair market value
"compensation" as defined by N.J.S.A. 20:3-2 (the Eminent Domain
Act), plus all associated costs paid by the City to acquire the
Property.See footnote 1 Atlantic City Ordinance #61-1994 (Ordinance 61)
authorized the implementation of the Stipulation and the
acquisition of the Property by condemnation if necessary.
The varied property interests in the Traymore Strip have
caused the current complications. Under Caesars' lease with
Cynwyd, if a portion of the Property were taken by eminent domain
Caesars would be entitled to a reduction in rent or its option
price if payments for that partial taking were in excess of $1
million. The City negotiated an acquisition price of $625,000
with Cynwyd despite having an appraisal in its files that valued
the Property at $1,122,400 for tax purposes. This alleged
underpayment would have had a devastating effect upon Caesars.
Under a formula for abatements in its lease, if the payment for a
taking were $1,122,000, Caesars would be entitled to a yearly
rent abatement of $75,546 of the $875,000 then current annual
rent paid by Caesars to Cynwyd. Because the lease provided for a
gradually increasing amount of rent during the ninety-nine year
term, the total loss to Caesars could have amounted to more than
$7,786,000.
In addition, the then-current option price of $13,000,000
would be reduced by $1,122,400 to $11,877,600, some 8.634
percent. However, if Cynwyd and Atlantic City were allowed to
agree to $625,000 as the total "compensation" to be improperly
paid to Cynwyd in condemnation, a figure which is alleged to be
about half of the City's own appraised value of the Property,
Caesars would lose the use of the Property being condemned, with
no rental or option price abatement at all under the terms of the
lease.
Under Square's sublease from Caesars, Square was not
entitled to any portion of the proceeds of a condemnation award,
but was entitled to a rent abatement for any portion of the
Property taken. Square would, however, lose its right to charge
Sands a market rental for the Property. If the City were able to
take short cuts in acquiring the Property, rather than to turn
the "square corners" required of government, W.V. Pangborne &
Co., Inc. v. New Jersey Dep't of Transp.,
116 N.J. 543, 561
(1989), Square would lose those valuable rental rights.
Both Square and Caesars challenged the taking, claiming in
separate actions primarily that Ordinance 61 was invalid and that
Atlantic City had not complied, in the condemnation action, with
the requirements of the Eminent Domain Act. The trial courts and
the Appellate Division found that the ordinance was valid, and
that Atlantic City had not violated the Eminent Domain Act
because the owner of the Property had waived compliance with its
requirements. We granted certification to review the petitions
of Square and Caesars.
145 N.J. 373 (1996).
Ordinance 61 and the Local Budget Law, N.J.S.A. 40A:4-57
The City adopted Ordinance 61 on August 31, 1994, after a public hearing at which Square objected to its passage. Ordinance 61 directed the City to take the necessary action to acquire the Property either by transaction or eminent domain. Section 3 of the ordinance stated that because all funds for the acquisition of the Property would be provided by Sands pursuant to the settlement, "no certification of funds is required." Accordingly, the ordinance made no appropriation of funds for the acquisition of the Property.
Square challenged Ordinance 61 and the contract that it approved as in violation of the Local Budget Law. Because the ordinance obliged the City to acquire real property without appropriating funds for the costs of acquisition, Square argued that the ordinance is void as an authorization of an expenditure without an appropriation. The ordinance and the contract it authorized did not specify the amount of the municipal obligation that it created; it recited that the City would receive monies to cover its costs from Sands in an undetermined amount, at an unspecified future date.
The Local Budget Law provides:
No officer, board, body or commission shall, during any fiscal year, expend any money (except to pay notes, bonds or interest thereon), incur any liability, or enter into any contract which by its terms involves the expenditure of money for any purpose for
which no appropriation is provided, or in
excess of the amount appropriated for such
purpose.
Any contract made in violation hereof shall
be null and void, and no money shall be paid
thereon.
A corresponding statute imposes criminal liability upon a public
official who purposely and knowingly "[d]isburses, orders or
votes for the disbursement of public moneys, in excess of the
appropriation . . . ." N.J.S.A. 2C:30-4a.
Sands countered that the Local Budget Law did not apply
because there was no expenditure of public funds involved. The
trial court disagreed that this was an entire answer, but ruled
that the City was not required to budget and appropriate funds
for the land acquisition in 1994 because the City would not,
under any circumstances, spend any funds in 1994, and that the
City could save Ordinance 61 by budgeting and appropriating funds
in its 1995 budget and expending the funds only in 1995. The
Appellate Division disagreed that a public body may first incur
an obligation and then fund it.
287 N.J. Super. 450, 458. It
reasoned that when uncertainty exists following the adoption of
an ordinance, concerning the source of the municipal funds
necessary to accomplish an obligation incurred under the
ordinance, a municipality could be said to have acted in a
"fiscally irresponsible manner." Ibid. However, when a public
body is not obliged to spend its own funds, or incur liability
pursuant to an acquisition, the Local Budget Law is not violated.
Id. at 455. Because the Stipulation expressly stated that Sands,
a private party, was providing the funds, the Appellate Division
held that the purpose of the Budget Law was not frustrated, as
the ultimate goal of financial responsibility was served. Id. at
458-59. In addition, the court observed that the funds were in
essence a conditional gift to the City. Id. at 458. A
municipality is authorized to accept and expend conditional
gifts. N.J.S.A. 40A:5-29.
The Local Budget Law regulates the budget-making process for all counties and municipalities in the State. N.J.S.A. 40A:4-21 to 45. All budgets must be prepared on a cash basis unless otherwise permitted by law. N.J.S.A. 40A:4-3. This insures that, absent unforeseen emergencies, local governments will pay for the expenses they incur with cash actually collected or received during the fiscal year. The purpose of the law is to require local governments to follow sound business principles in their budgetary practices. It aims to insure that anticipated revenues equal expenditures, State v. Boncelet, 107 N.J. Super. 444, 450 (App. Div. 1969), and to prohibit deficit financing. Mount Laurel Township v. Local Finance Bd., 166 N.J. Super. 254, 257 (App. Div. 1978), aff'd, 79 N.J. 397, 399 A.2d 980 (1979).
The purposes of local budgetary requirements are to inculcate sound business principles and practices into municipal economic administration, with particular reference to the avoidance of waste, extravagance and ill-considered expenditures, as well as to give
the members of the taxpaying public a better
understanding of the financial affairs of the
municipality.
[Kotlikoff v. Township of Pennsauken,
131 N.J. Super. 590, 595 (Law Div. 1974).]
As the trial court found, each of these purposes was
addressed by the adoption of the Stipulation and Ordinance No. 61
to implement it. The public was given every opportunity to have
a "better understanding" whether the expenditures were "ill
considered" or a sign of "extravagance." Kotlikoff, supra, at
595.
The trial court found that the Stipulation between the City
and Sands, settling lengthy litigation, served not only the goals
of the Budget Law, but also the overriding public policy goal of
providing a major public benefit at no cost to the taxpayers.
Ordinance 61 and the Stipulation obligated Sands to finance the
City's formal acquisition of a portion of Pop Lloyd Boulevard as
a public right-of-way. The City deemed the acquisition of the
Property to be for a lawful public purpose, and that
determination has not been put in issue. See New Jersey Housing
& Mortgage Fin. Agency v. Moses,
215 N.J. Super. 318, 326 (App.
Div.), certif. denied,
107 N.J. 638 (1987) (holding that
condemnation power may not be used for private purpose). We are
informed that opportunity to discover any ulterior motivation was
allowed but not pursued.
The common thread running through the cases like Mount
Laurel Township, supra,
166 N.J. Super. 254, is that the
municipality had incurred actual obligations (there to pay its
lawyers) without the present ability to meet them. Such cases differ from the City's obligation under the Stipulation. It incurred no expenses unless the expenditure was pre-funded by Sands. Section 3 of the Ordinance reads: "Pursuant to the terms of the Stipulation, all funds for the acquisition . . . shall be provided by Sands and therefore no certification of funds is required." Sands argues that Ordinance 61 obligated it to pay "up-front," and not to simply reimburse the City at some future time. This happened when Sands deposited the funds for the acquisition with the City before the City filed its Declaration of Taking. Of course, there remained the possibility that the actual value determined in the condemnation might exceed the deposit but the trial court found, and we agree, that "sound business principles," Kotlikoff, supra, at 595, preceded the decision to acquire the property. It often happens that a municipality may acquire lands or incur obligations without the use of taxpayer funds. Familiar examples are the use of Green Acre funds to acquire park lands or state or federal funds to construct a sewage treatment plant. We do not assume that the Local Budget Law would, in every instance, preclude a municipality from incurring an obligation before the grant funds are received. The contracts may contain any necessary provision for contingent receipt of funds. We would be more concerned about an action to acquire lands without presently available funds were it not for the enforceable Stipulation and the concurrent judicial supervision of the obligations of Sands. The
only risk was the bankruptcy of Sands between the time of
Declaration of Taking and any later award of commissioners or
jury. We thus agree with the courts below that the Local Budget
Law was not violated in these circumstances.
Section 6 of the Eminent Domain Act .
Before the City instituted the condemnation action pursuant to Ordinance 61, it negotiated with Cynwyd and its counsel for the purchase of the Property. No new appraisals were commissioned by the City. But, because Cynwyd participated in the tax appeal by Caesars on the Traymore site, Cynwyd was aware of the appraisals done for purposes of that appeal, specifically that the City had valued the Traymore site at a square-foot price that gave the Property a value in excess of $1,000,000. Notwithstanding that knowledge, the City and Cynwyd entered into an "Agreement as to Compensation," setting $625,000 as fair compensation for the Property. That agreement provided that the amount paid for the Property would "not be evidential or used as an indicia of value in any tax appeal on any property located in Atlantic City." Cynwyd, however, could not deliver an unencumbered title. Therefore, the City had to institute condemnation proceedings under the Eminent Domain Act, N.J.S.A. 20:3-1 to -50.
The Eminent Domain Act provides uniform procedures to be
applied to ensure that these constitutional requisites are met
and to "increase protection to the citizen whose property is
condemned." County of Monmouth v. Wissell,
68 N.J. 35, 40 (1975)
(quoting Governor Cahill). N.J.S.A. 20:3-6 requires that the
condemnor conduct "bona fide negotiations with the prospective
condemnee" before any condemnation action under the Eminent
Domain Act may be instituted. Before any offer may be made to
the condemnee, "the taking agency shall appraise said property."
No "offer [shall] be less than the taking agency's approved
appraisal of the fair market value of such property." Ibid. Our
Rule 4:73-1 tracks these statutory requirements for the
institution of condemnation proceedings. Rule 4:73-1 requires
that the condemnation complaint also include the amount of
compensation offered and a "reasonable disclosure" of the way in
which that amount is calculated. Under Rule 4:73-1, "reasonable
disclosure" includes making "a statement of the full fair market
value including a description of the appraisal valuation method
or methods relied upon as well as a breakdown of the appraised
value allocated to the land to be acquired." These requirements
were not followed.
Caesars and Square argue that these deficiencies entirely
invalidate the proposed condemnation because the initial offer
that the City could have made to Cynwyd could in no event be less
than the City's approved appraisal of the fair market value of
the Property. They argue that Sands and Cynwyd used the
condemnation statutes purely for their own purpose. By
distorting the appraisal process and giving up at least $497,000
now, Cynwyd stood to gain approximately $7,300,000 in rent at the
expense of Caesars. In addition, with the taking of the
Property, Square threatened to pay Caesars $23,000 less per month
in rent, an additional annual loss of $276,000. This, Caesars
argued, explained why that transaction had been given the outer
appearance of a condemnation when it otherwise bears every
indicia of a voluntary sale.
These were provocative concerns. As it turns out, some of
the potential damages have been mitigated by virtue of the fact
that Caesars has acquired the Property under its option to
purchase from Cynwyd and would not be obliged to pay the extra
$7,000,000 in rental over the life of the lease. Nonetheless,
Caesars can sustain significant losses in its option price or the
rentals between the Declaration of taking and the exercise of the
option. Square stands to lose its right to the rental income.
The issues are of genuine concern.
We agree that the pre-condemnation requirements of N.J.S.A. 20:3-6 to perform an appraisal and submit that appraisal to the condemnee cannot be dispensed with over the objection of a condemnee. Borough of Rockaway v. Donofrio, 186 N.J. Super. 344, 354 (App. Div. 1982). In Monmouth County v. Whispering Woods at Bamm Hollow, Inc., 222 N.J. Super. 1 (App. Div. 1987), certif.
denied,
110 N.J. 175 (1988), the Appellate Division dismissed a
complaint in condemnation because of the county's failure to
supply the condemnees with an appraisal, even though an appraisal
had, in fact, been performed. However, it has been held that
these requirements may be waived by a condemnee. Township of
Millburn v. Pitt,
68 N.J. 424 (1975). The question is, who is a
condemnee? N.J.S.A. 20:3-2(c) defines a condemnee as "the owner
of an interest in the private property being condemned for a
public purpose under the power of eminent domain." (Emphasis
added.) At stake is whether Section 6 protects not only the
record owners, but tenants and other parties having an interest
in the condemned property.
N.J.S.A. 20:3-6 reads, in relevant part:
[N]o action to condemn shall be instituted
under the condemnor is unable to acquire such
title or possession through bona fide
negotiations with the prospective condemnee,
which negotiations shall include an offer in
writing by the condemnor to the prospective
condemnee holding the title of record to the
property being condemned, setting forth the
property and interest therein to be acquired,
the compensation offered to be paid and a
reasonable disclosure of the manner in which
the amount of such offered compensation has
been calculated, and such other matters as
may be required by the rules.
Prior to such offer, the taking agency shall
appraise said property and the owner shall be
given an opportunity to accompany the
appraiser during the inspection of the
Property. . . .
When the holder of the title is unknown,
resides out of the State, or for other good
cause, the Court may dispense with the
necessity of such negotiations.
Under the Act, the negotiations are to be undertaken with
the condemnee who holds title of record to the property. Given
the breadth of the term "condemnee," the limitation in Section 6
on the "condemnee" with whom the condemnor must negotiate to the
"condemnee who holds title of record" avoids the difficult
requirement of negotiating with each condemnee having an interest
in the property. At oral argument, we considered the case of a
highway widening abutting a strip mall. Before a taking, the
State would have to negotiate with the mall owner, the anchor
tenants, the mortgagees, and others having "an interest in the
property being condemned." The rights of all other condemnees
with a compensable interest are better protected by allowing them
to participate later during the Commissioner's hearing, where
value is determined, N.J.S.A. 20:3-12, and during the still
subsequent proceeding when the compensation is allocated.
N.J.S.A. 20:3-34; Rule 4:73-9. See State v. New Jersey Zinc Co.,
40 N.J. 560 (1963) (holding that New Jersey follows the "unit
rule" appraising in condemnation not each constituent interest's
value, but the total bundle of rights making up fee).
Our law has frequently recognized that the purpose of the
statutorily-required negotiations set forth in Section 6 is to
encourage settlements and the voluntary acquisition of property
needed for public purposes, allowing both the public entity and
land owner to avoid the expense and delay of litigation and a
trial, while permitting the land owner to receive just
compensation. See, e.g., State ex rel. Comm'r of Transp. v. Town
of Morristown,
246 N.J. Super. 156 (App. Div. 1991), rev'd on
other grounds,
129 N.J. 279 (1992).
That statutory purpose was accomplished because the
compensation agreement eliminated any legal dispute between the
City and Cynwyd. Township of Millburn establishes that those
with whom a condemnor negotiates prior to the filing of suit may
elect to waive strict compliance with the statutory provisions of
Section 6. 68 N.J. at 427. Cynwyd has done that.
This is not a case in which the parties were forced into
litigation because they disagreed about compensation and the
condemnor refused to provide an appraisal or other information
concerning its offering price. It is in those cases, and
invariably at the request of the record owner of a property, that
courts have dismissed a condemnation complaint and directed a
condemnor to comply strictly with the procedural steps set forth
in Section 6. Borough of Rockaway, supra, 186 N.J. Super. at
351. The trial court read Whispering Woods, supra, 222 N.J.
Super. at 7, for the principle that a condemnation complaint
ought not be dismissed for failure strictly to comply with the
procedural prerequisites to suit without an inquiry as to whether
the title holder was prejudiced thereby. The trial court found
that Cynwyd had suffered no prejudice because it and the City had
agreed on valuation.
Caesars argues that, as a ninety-nine-year lessee of the
Property, it was entitled to the same rights under Section 6 as
the condemnee holding the title of record of the property being
condemned. In some circumstances, New Jersey courts have held
that ninety-nine-year lessees are equivalent to fee simple owners
under the common law. Lake End Corp. v. Township of Rockaway,
185 N.J. Super. 248, 256 (App. Div. 1982) ("[a]s a matter of law
and fact, ninety-nine-year leaseholds are the equivalent of a fee
ownership for the purposes of real property taxation, valuation
and assessment.") See Ric-Cic Co. v. Bassinder,
252 N.J. Super. 334 (App. Div. 1991) (granting standing to ninety-nine-year
perpetual lessee to apply for variances under N.J.S.A. 40:55D-3
to -4). However, in West Jersey Grove Camp Ass'n v. City of
Vineland,
80 N.J. Super. 361 (App. Div. 1963), the court declined
to afford property tax exemptions to holders of ninety-nine-year
leases that were not renewable. Whether a ninety-nine-year
lessee should be considered a de facto fee simple owner for
condemnation purposes constitutes an issue of first impression.
In general, the rights of the holder of a ninety-nine-year lease
depend on the contract and the legislative intent underlying the
applicable statutory regime. Although ninety-nine-year lessees
are deemed to be equivalent to fee simple owners for certain
purposes under the law, we decline to apply the doctrine to
condemnation. There are instances when the decision to condemn
must be made very swiftly and it might be difficult to ascertain
the terms of leasehold interests.
We do not, however, hold that a condemnee holding record
title may waive the procedural rights under the act without
consideration of the rights of other condemnees. Section 6
permits a court to dispense with the required negotiations for
"good cause." Care must be taken to ensure that the cause is
good. Thus, a court probably should dismiss a complaint in
condemnation if the waiver of procedural rights by a holder of
record title works an actual prejudice to other condemnees,
including ninety-nine-year lessees.
The point to be remembered about this case is that the
processes of law were not completed upon filing of the complaint.
At oral argument, the case was described as being "just at the
starting gate." The motion to dismiss the condemnation
proceeding was based on precondemnation activities, not the
actual condemnation itself. The fact that Cynwyd and the City
had agreed on a figure for purposes of condemnation may have been
sufficient to authorize the City to institute the condemnation
proceedings, but that would not, in our judgment, foreclose the
participation of Caesars or Square in the condemnation trial
itself. See State ex rel. Comm'r of Transp. v. Jan-Mar, Inc.,
210 N.J. Super. 236, 241 (Law Div. 1985) (holding that condemnee
with compensable interest is permitted to offer noncumulative
evidence of value at Commissioners' hearing); New Jersey Sports &
Exposition Auth. v. East Rutherford,
137 N.J. Super. 271, 292
(Law Div. 1975) (holding same). It is evident to us that
although Caesars and Square may not have had compensable
interests in the award itself, there were differing interests in
the outcome of the condemnation that would have required their
participation. The condemnation process involves the exercise of
one of the most awesome powers of government.
Generally, when the exercise of eminent
domain results in a substantial benefit to
specific and identifiable private parties, "a
court must inspect with heightened scrutiny a
claim that the public interest is the
predominant interest being advanced."
Poletown Neighborhood Assoc. v. City of
Detroit, Mich.Supr.,
410 Mich. 616,
304 N.W.2d 455, 459 (1981). In determining
whether projects with substantial benefit to
private parties are for a public purpose,
this Court has held that the trial court must
examine the "underlying purpose" of the
condemning authority in proposing a project
as well as the purpose of the project itself.
[Wilmington Parking Authority v. Land With
Improvements, Situate in the City of
Wilmington, New Castle County, 521 A.2d 227,
231 (De. 1986).]
The power of eminent domain must always be exercised in the
public interest and without favor to private interests. The
proper solution to vindicate the public interest in this case
would have been to have Caesars and Square participate in the
valuation proceedings to present noncumulative evidence of fair
value. Ordinance 61 never contemplated that anything other than
fair value would be paid for the Property. Whether after
exercise of the option the interests of the parties commend such
action is for them to decide.
The judgments of the Appellate Division are affirmed.
CHIEF JUSTICE PORITZ and JUSTICES HANDLER, POLLOCK,
GARIBALDI, STEIN and COLEMAN join in JUSTICE O'HERN's opinion.
NO. A-55/56/57 SEPTEMBER TERM 1996
ON APPEAL FROM
ON CERTIFICATION TO Appellate Division, Superior Court
THE CITY OF ATLANTIC CITY,
a Municipal Corporation,
Plaintiff-Respondent,
v.
CYNWYD INVESTMENTS, etc., et al.,
Defendants-Respondents,
and
CORESTATES NJ NATIONAL BANK, et al.,
Defendants,
and
BOARDWALK REGENCY CORPORATION, etc., et al.,
Defendants-Appellants.
-------------------------------------------------
(and another related matter)
DECIDED March 10, 1997
Chief Justice Poritz PRESIDING
OPINION BY Justice O'Hern
CONCURRING OPINION BY
DISSENTING OPINION BY
Footnote: 1After the settlement, the court entered judgment on other issues in the suit. The court required Sands to pay Square $562,833.34 in back rent for the Property and to continue paying Square $22,926.67 per month for the rental of the Property.